I think the most discussed scenario of the dollar rally is a
severe global recession due to evaporation of dollar-
denominated debt, possible carry trade blow-up, and things of
that nature. That would take oil and gold down, and possibly
rally the buck.
I'm personally inclined to believe that the dollar will fall
rather then rise even then, since the Fed will continue to slash
the rates. If the carry trade blows up, this will likely lead to
much higher long-term rates and an accelerated debt collapse.
Bond vigilantes will be born again.
Perhaps, the dollar could rally if the Fed manages to reinflate
the debt bubble, but I doubt such scenario is a realistic
possibility at this point. A shock therapy similar that of
Volcker in the 80-s will be required at some point, and it
will take a long time to get the faith in the dollar restored
after a prolonged period of inflation lies and dollar
destruction. However, at this point such shock therapy is
not an option.
In other words, we blew up the dollar in our attempt to save
the stock market bubble. -ng- The dollar will inevitably
collapse, and the Fed will be faced with either taking the
tough Volcker pill to stop that collapse or monetarization
of bad debt and, as a result, hyperinflation and a total
destruction of the dollar. |
